2015 may well go down as the year when sustainable investing went mainstream.
For many years, it felt as though Pax World and a handful of industry colleagues were lonely voices in the wilderness, calling on investors and financial markets to embrace sustainability, to think long term, to insist that corporations not only better serve their shareholders, but other
stakeholders as well—their employees, the communities where they do business, the natural environment.
Now these sentiments are no longer in the minority. In fact, they are no longer even sentiments; they are a full-fledged investment discipline. Moreover, it is an investment discipline in high demand.
2015 saw a veritable explosion of media coverage, new fund launches, new entrants into the field and a growing consensus that integrating environmental, social and governance (ESG) research into investment strategies is an idea whose time has come. As 2016 unfolds, these developments
continue to pick up speed.
What is driving this sea change? What is changing the investment landscape so suddenly and
It is surely a confluence of many things, but let me point to a few:
Data. The research at this point is clear: integrating ESG factors into investment portfolios is a strategy for mitigating risk and achieving market or above-market returns over the long term. At Pax, we have always felt that companies that understand and embrace the imperative of sustainability will be better long-term investments, and this turns out to be true. For example, there is now compelling, indeed overwhelming, research underscoring that where women are better represented on corporate boards and in corporate management, companies simply perform better.1
Demographics. It is also clear that certain investors, including perhaps the two fastest growing demographics within the investment landscape—women and Millennials—want their investments aligned with their values.2 They want to invest in companies with diverse leadership teams. They want to invest in companies that are making a positive difference in the world; they want to be part of the solution rather than part of the problem.
Impact. Today, there are certain fundamental global challenges—climate change and gender inequality clearly fall into this category—that not only demand change but demand that capital markets help drive that change. A new vision of the business corporation is emerging, replacing
the old notion that the only duty of a corporation is to make a profit. Instead, a more expansive vision and set of expectations is taking hold, wherein consumers, investors and business leaders themselves increasingly agree that businesses not only need to be more responsive to social and
environmental concerns, but must help lead the transition to a more sustainable global economy. Businesses can help drive positive change, and we believe investors will increasingly reward those businesses that do.
We all want to make a difference. We all want to lead meaningful lives. Now, increasing numbers of us understand that our money, our investments, need to be part of this equation. We want a fair return, yes, but we also want to invest in organizations that are making a positive contribution to a better society and a healthier planet.
That’s what sustainable investing is all about, and I believe this idea in some ways has finally broken through. Our work at Pax has made a significant contribution in this regard, and we will continue to provide leadership and work with others to provide direction as this movement continues to grow.
1 Jie Chen, Woon Sau Leung and Kevin P. Evans, “Board Gender Diversity, Innovation and Firm Performance,” Social Science Research Network,
November 30, 2015. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2607295
2 Bank of America Private Wealth Management, U.S. Trust, “2015 U.S. Trust Insights on Wealth and Worth,” 2015. http://www.ustrust.com/publish/content/application/pdf/GWMOL/USTp_AR3FPDKC_2016-05.pdf